How Freight Cost is Determined

May 28, 2020 Mary Walton Mary Walton

Store and e-commerce business owners need to ship goods regularly. They are well aware that shipping logistics are central to the growth and success of a business. They should be able to tell apart a good shipper from a lousy shipper. More so, since the retail avenue is leaning more into e-commerce every hour because of the Covid-19 situation.

For a business owner, it is crucial to understand freight cost calculation. Efficient shippers skillfully cut down on the transportation cost and time required to make the delivery. "With the crisis in hand, the efficiency and reliability of shippers have never been more important" - says Hannah Butler, an editor from a WriteMyPaper4Me company.


What are Cost and Freight?

Cost is the total valuation of the goods to be transported and freight is the total cost incurred by the various modes of transport used to transfer the goods. Therefore, in order to obtain the goods at a particular port, the seller must compensate for the cost, insurance, and freight.


Factors Affecting Freight Cost

The freight rate imposed on you by the forwarder depends on a variety of factors such as:

  • whether you are moving the cargo through sea, road or air
  • whether the cargo is transported in containers or loose
  • the space occupied or mass of the cargo (whichever is higher)
  • the distance between the place of origin and destination of the cargo.

Let us start with rates of sea freight.


Sea Freight Rates




Sea freight can be divided into three prime categories:

  • extra expenses incurred by handling the goods at the destination ports
  • the service opted for- FCL or LCL

Besides, various surcharges are incorporated on a daily basis and will most probably include:

  • Inland haulage
  • Documentation
  • Clearance from the customs
  • Charges from terminal handling- THC
  • Factors to adjust currency- CAF
  • Bunker adjustment factor (BAF)
  • Security


LCL (Less than Container Load)

It is also called groupage shipping. In case you don’t need to ship cargo that would need an entire shipping container you should go with LCL. For example, when shipping marijuana to meet its increasing demand. With increased intake of marijuana comes the necessity to know the best way to rid your system of it whenever required. Read more about the best THC detox here.

Freight consolidators specializing in LCL collect various smaller cargo to be shipped and pack them in a single container after leasing it from the shipping forwarder and procure their profit by levying charges per meter cube or per tonne on a pro-rata basis.


FCL (Full Container Load)

As the name indicates, the freight forwarder imposes a flat price per 20 feet or 40 feet of a container or 40 feet of high cube container. The total charge depends upon factors such as the starting and endpoints of the journey, time of the year, the space occupied by goods in addition to a number of other elements.


Air Freight Rates




Each airline- be it an only cargo transporter or a cargo transporter in addition to passengers- levy various rates based on the service type and route chosen. Carriers use the numerical figure of the mass or the space occupied by your goods and then choose whichever is higher for freight cost calculation.


Additional Charges

Your cargo is handled by different parties starting from the origin to its destination. This amounts to various additional charges such as:

  • Fuel surcharge (FSC)
  • Container freight station (CFS)
  • Security surcharges
  • Airline terminal handling fees
  • Custom clearance fees
  • Cargo insurance


Road Freight Rates




Knowing the ins and outs of different options provided by your shipment company can save you company money to invest it elsewhere to boost the productivity of your team.


LTL (Less Than Truckload)

If you go with LTL shipment, your cargo will be one of the many goods from various other shippers. There’s more room for errors. The drivers are constantly on that time crunch, as a small delay leads to major disruptions for businesses. The thumb rule is- when shipping only a few larger-than-parcel goods, LTL is the option for you.


FTL (Full Truckload)

One opts for FTL shipment when you lease the whole truck capacity for the sole transportation of your cargo. It basically amounts to the transporter loading your goods at the starting point, sealing the vehicle, and the driver driving it to its destination. The truck and the various operators are involved with only your cargo during the shipment period. The only thing you should be concerned about is the allowed weight limit.


Conclusion

Freight cost calculation is affected by a multitude of factors. Moreover, there are various categories of additional charges. A group of these factors changes according to season. By following the numbers regularly you can figure out tips and tricks to reduce freight cost while negotiating contracts.

Mary Walton is a professional editor, content strategist, and a part of MarijuanaDetox team. Apart from writing, Mary is passionate about hiking and gaming. Feel free to contact her via Facebook.

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